Are we back in 2008?

That’s what it felt like yesterday and today during the Asia session. The markets’ sell off was brutal with investors dumping anything perceived as risky and instead flocking to dollar-based liquidity.

Even gold fell as some investors had to sell high quality assets to fund margin calls elsewhere. It must have been a long 24 hours in Tokyo and Switzerland.

Their central banks intervened this week to reduce pressure on their currencies, but they are fighting a losing battle. Euro/Swiss Franc was back at the 1.08/1.09 level today as risk sentiment soured.

The Swiss National Bank once again reiterated that it would do all that is necessary to stop the franc from appreciating, so we expect more from them to come.

Likewise, the yen strengthened. The Bank of Japan (BOJ) is playing a dangerous game with the markets. While there were rumors in the Asian session that the BOJ intervened again to try and stem currency appreciation, US Dollar / Japanese Yen strength is being met with a wave of selling from retail and corporate names, according to some reports.

The BOJ and SNB may have made a bigger mark to wait to intervene after the payrolls figure this afternoon, which is what every investor out here in Sydney - where I am based this week, is waiting for.

Payrolls are always important, but today’s figure is loaded with significance. The markets expects 85,000, any sign of weakness could be met with 1, immediate panic selling akin to yesterday, 2, after a sharp downward move, potentially an improvement in risk appetite as more and more people start to look to the Fed to provide more stimulus to boost the faltering US economy.

It’s possible that the market would be pleased with anything above 50,000 considering how negative expectations have become.

However, the bigger picture is that even if the US can muster 50,000 it is still a tiny number that would suggest paltry economic growth and is far below the 200,000 monthly jobs needed to bring down the unemployment rate.

The July figure may also have been affected by the US debt ceiling debate up on Wall Street. The prospect of the US defaulting is unlikely to have encouraged hiring.

So this month’s non-farm payrolls release, although it will set the tone for the markets for the rest of the month, is not going to be a good reflection of the US economy.

Overall, markets are likely to remain quiet until the number is released, but then expect fireworks. The Aussie stock market sold off heavily along with global markets today.

Likewise, the Aussie dollar followed risk lower. Not too long ago people were calling the Aussie the next safe haven. While its low debt levels could lend it strength in the future, right now the Aussie’s economy is too intertwined with the global outlook for it to decouple.

Australia’s growth is dependent on China; China’s growth is still largely dependent on the US. While domestic demand is picking up across Asia it’s not enough to lift global growth yet. While we are not looking for a global recession, which is a surprisingly rare event, there is a lot of confusion out there.

The markets staged impressive rallies over the last two years on the basis that global growth would bounce back. However, the recovery has been shallower than expected and now the markets have to re-adjust.

We may be entering a period where the markets become much more realistic about the growth outlook as Asia tries to move towards a consumption growth model and most of the West tries to strengthen sovereign balance sheets. While the US is centre stage today, we can’t forget the Eurozone.

The European Central Bank flat-out refused to monetise Spain and Italy’s debt and instead cut them loose to the markets.

Until the European Financial Stability Facility (EFSF) is increased to a large enough size (possibly to the tune of US $2 trillion) then the upwards pressure on bond yields is unlikely to subside. In this environment gold may bounce back. After all, it’s politicians and their policy mistakes that have caused a lot of this carnage.

Unlike currencies, gold isn’t directly managed or controlled by a country so it may climb to fresh highs as a result. Central bank intervention, Italy and Spain edging closer to default, the US avoiding default by the skin of its teeth and Nonfarm payrolls to - these weeks don’t come around often.